Competing for ADVANTAGE PART III CREATING COMPETITIVE ADVANTAGE

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Competing for ADVANTAGE PART III CREATING COMPETITIVE ADVANTAGE Chapter 10 International Strategy 1

Competing for ADVANTAGE PART III CREATING COMPETITIVE ADVANTAGE Chapter 10 International Strategy 1

The Strategic Management Process

The Strategic Management Process

International Strategy � Key Terms � International diversification Strategy through which a firm expands

International Strategy � Key Terms � International diversification Strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets

International Strategy

International Strategy

International Strategy � Key Terms � International strategy Strategy through which the firm sells

International Strategy � Key Terms � International strategy Strategy through which the firm sells its goods or services outside the domestic market

Incentives for Using an International Strategy � Increased market size � Greater returns on

Incentives for Using an International Strategy � Increased market size � Greater returns on major capital investments or on investments in new products and processes � Greater economies of scale, scope, or learning � Potential for competitive advantage(s) based on location

Market Size � � � Limited domestic economies or growth opportunities Both opportunities and

Market Size � � � Limited domestic economies or growth opportunities Both opportunities and challenges in emerging markets Impact of local cultures and customs Impact of international market size Extended product life cycle

Return on Investment � Large investment projects may require global markets to justify the

Return on Investment � Large investment projects may require global markets to justify the capital outlays. � Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators.

Economies of Scale, Scope, and Learning � � � Expand size or scope of

Economies of Scale, Scope, and Learning � � � Expand size or scope of markets to achieve economies of scale Spread costs over a larger sales base Increase profit per unit

Location Advantages � � Competitive advantages are available in low cost markets Access to

Location Advantages � � Competitive advantages are available in low cost markets Access to critical resources: Raw materials Low-cost factors of production Low-cost labor Key customers Energy Other natural resources

Expanding Internationally � � � Type of expansion approach How to use distinctive competencies

Expanding Internationally � � � Type of expansion approach How to use distinctive competencies to create advantages Mode of entry into new markets

International Corporate-Level Strategies � Key Terms � International corporate-level strategy Strategy which focuses on

International Corporate-Level Strategies � Key Terms � International corporate-level strategy Strategy which focuses on the scope of a firm’s operations through both product and geographic diversification

International Scope Worldwide Presence or Regionalization

International Scope Worldwide Presence or Regionalization

Regionalization � � � Trade agreements and institutions Ability to understand the cultures, legal

Regionalization � � � Trade agreements and institutions Ability to understand the cultures, legal and social norms, and other factors that are important for effective competition in specific markets Sequential market entry

Liability of Foreignness Liabilities associated with being a foreign business in a highly different

Liability of Foreignness Liabilities associated with being a foreign business in a highly different business environment can make competing on a worldwide scale risky and expensive. � Employment contracts and labor forces differ. � Host governments make different demands and requirements to compete in their markets. � Understanding customers may be difficult.

International Corporate-Level Strategies

International Corporate-Level Strategies

Multidomestic Strategy � Key Terms � Multidomestic strategy International strategy in which strategic and

Multidomestic Strategy � Key Terms � Multidomestic strategy International strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country to allow that unit to tailor products to the local market � Worldwide geographic area structure Organizational structure which emphasizes national interests and facilitates the firms' efforts to satisfy local or cultural differences (used to implement the multidomestic strategy)

Maximizing Local Responsiveness � Focus on variations of competition within each country � Customize

Maximizing Local Responsiveness � Focus on variations of competition within each country � Customize products to meet specific needs and preferences of local customers � Decentralize decisions to business units in each country � Compete in industry segments most affected by differences among local countries

Effects of a Multidomestic Strategy � Expands the firm’s local market share � Maximizes

Effects of a Multidomestic Strategy � Expands the firm’s local market share � Maximizes competitive responsiveness to local conditions � Establishes protected market positions � Isolates the firm from global competitive forces � Lowers efficiency levels � Increases uncertainty

Worldwide Geographic Area Structure

Worldwide Geographic Area Structure

Global Strategy � Key Terms � Global strategy International strategy through which the firm

Global Strategy � Key Terms � Global strategy International strategy through which the firm offers standardized products across country markets, with the competitive strategy being dictated by the home office � Worldwide product divisional structure Organizational structure in which decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy)

Maximizing Global Integration � Integrate interdependent strategic business units operating in each country �

Maximizing Global Integration � Integrate interdependent strategic business units operating in each country � Emphasize economies of scale � Share resources across country boundaries � Centralize decisions at the home office � Utilize innovations developed at the corporate level or in one country in other markets

Effects of a Global Strategy � Maximizes integration across business units � Produces standardization

Effects of a Global Strategy � Maximizes integration across business units � Produces standardization � Lowers risk � Fosters a shared vision of the firm’s strategy � Lowers responsiveness to local needs and preferences � Permits missed opportunities in local markets � Reduces effectiveness of learning processes � Adds management complexity

Worldwide Product Divisional Structure

Worldwide Product Divisional Structure

Transnational Strategy � Key Terms � Transnational strategy International strategy through which the firm

Transnational Strategy � Key Terms � Transnational strategy International strategy through which the firm seeks to achieve both global efficiency and local responsiveness � Flexible coordination Building a shared vision and individual commitment through an integrated network � Worldwide combination structure Organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement the transnational strategy)

Worldwide Combination Structure � Assets and operations may be centralized/decentralized � Functions may be

Worldwide Combination Structure � Assets and operations may be centralized/decentralized � Functions may be integrated/nonintegrated � Relationships may be formal/informal � Coordination mechanisms may leverage efficiency/flexibility � Mandates to subsidiaries may be global/specialized-contribution/localizedimplementation

Role of Subsidiaries � Global Mandate � Specialized Contribution � Local Implementation

Role of Subsidiaries � Global Mandate � Specialized Contribution � Local Implementation

Requirements of a Combination Structure � Strong educational component to support the culture �

Requirements of a Combination Structure � Strong educational component to support the culture � Adaptation of core competencies in local economies to gain competitive benefits � Effective corporate headquarters to foster leadership, shared vision, and strong corporate identity � Centers of excellence to foster multiple and dispersed capabilities

Developments for Multinational Firms � Emphasis on global efficiency is increasing as more industries

Developments for Multinational Firms � Emphasis on global efficiency is increasing as more industries begin to experience global competition � Emphasis on local requirements is also increasing � Multinational firms desire coordination and sharing of resources across country markets to hold down costs � Some products and industries are more suited than others for standardization across country borders

International Business-Level Strategy Global Corporate-Level Strategy Multidomestic Corporate-Level Strategy Subsidiaries play the role of

International Business-Level Strategy Global Corporate-Level Strategy Multidomestic Corporate-Level Strategy Subsidiaries play the role of local implementer Subsidiaries have more control over approaches used in their own domestic markets Usually associated with a cost leadership strategy Generic strategy depends on local conditions and capabilities

Determinants of National Advantage

Determinants of National Advantage

Modes of Entry and Their Characteristics

Modes of Entry and Their Characteristics

Exporting � Low cost way to establish operations in host country � Often through

Exporting � Low cost way to establish operations in host country � Often through contractual agreements � High transportation costs � Potential for tariffs � Low control over marketing and distribution

Licensing � Low cost way to expand internationally � Risks absorbed by licensee �

Licensing � Low cost way to expand internationally � Risks absorbed by licensee � Low control over manufacturing and marketing � Lower potential returns (shared with licensee) � Risk of imitation by licensee � Ownership arrangements often inflexible

Strategic Alliances � Fewer entry resources and costs required � Shared risks and resources

Strategic Alliances � Fewer entry resources and costs required � Shared risks and resources � Potential core competency development � Possible partner incompatibility, conflict, or lack of trust � Management difficulties

Acquisitions � Quick access to market � Costly � Possible integration difficulties � Complex

Acquisitions � Quick access to market � Costly � Possible integration difficulties � Complex negotiations and transaction requirements

New Wholly Owned Subsidiary � Costly mode of entry � High process complexity �

New Wholly Owned Subsidiary � Costly mode of entry � High process complexity � Maximum control � Highest potential returns � High risk

Mode of Entry Dynamics Strategy Use Early stages of international Export expansion Licensing Facing

Mode of Entry Dynamics Strategy Use Early stages of international Export expansion Licensing Facing uncertainty Strategic Alliances To secure a stronger presence Later stages of international expansion Acquisitions Greenfield Ventures Valuable, transferrable core Acquisitions competencies are present Greenfield Ventures Emerging economies Large Diversified Businesses Korean Chaebols

Strategic Outcomes � � International Diversification and Returns International Diversification and Innovation International Diversification

Strategic Outcomes � � International Diversification and Returns International Diversification and Innovation International Diversification and Risk

International Diversification and Returns � � � � � Economies of scale and experience

International Diversification and Returns � � � � � Economies of scale and experience Location advantages Greater market size Stability of returns Lower overall firm risk Exploitation of core competencies Knowledge resource sharing Global scanning for opportunities Structural flexibility

International Diversification and Innovation � � � Access to larger and more markets Lower

International Diversification and Innovation � � � Access to larger and more markets Lower R&D investment risk Exposure to new products and processes Opportunity to integrate new knowledge into operations Generation of resources to sustain innovation efforts

Risks in an International Environment � Political risks � Economic risks � Other formal

Risks in an International Environment � Political risks � Economic risks � Other formal institutional risks

Political Risks Government instability Conflict/war Government regulations Conflicting and diverse legal authorities Potential nationalization

Political Risks Government instability Conflict/war Government regulations Conflicting and diverse legal authorities Potential nationalization of private assets Government corruption* Changes in national leadership Changes in government policies

Economic Risks � Differences and fluctuations in currency values � Investment losses due to

Economic Risks � Differences and fluctuations in currency values � Investment losses due to political risks � Potential infrastructure or financial system damage from major disasters

Complexity of Managing Multinational Firms � Geographic dispersion � Costs of coordination � Logistical

Complexity of Managing Multinational Firms � Geographic dispersion � Costs of coordination � Logistical costs � Trade barriers � Cultural diversity � Barriers to competitive advantage transfer � Host governments

ETHICAL QUESTION As firms internationalize, they may be tempted to locate facilities where product

ETHICAL QUESTION As firms internationalize, they may be tempted to locate facilities where product liability laws are lax in testing new products. Is this an acceptable practice? Why or why not?

ETHICAL QUESTION Regulation and laws regarding the sale and distribution of tobacco products are

ETHICAL QUESTION Regulation and laws regarding the sale and distribution of tobacco products are stringent in the U. S. market. What are the ethical implications of U. S. firms pursuing marketing strategies for tobacco products in other countries that would be illegal in the United States?

ETHICAL QUESTION Some companies outsource production to firms in foreign countries to save money.

ETHICAL QUESTION Some companies outsource production to firms in foreign countries to save money. To what extent is a company morally responsible for the way workers are treated by the firms in those countries to which they outsource production?

ETHICAL QUESTION Global and multidomestic strategies call for different competitive approaches. What ethical concerns

ETHICAL QUESTION Global and multidomestic strategies call for different competitive approaches. What ethical concerns might surface when firms try to market standardized products globally? When should firms develop different products or approaches for each local market?

ETHICAL QUESTION Are companies morally responsible to support the U. S. government as it

ETHICAL QUESTION Are companies morally responsible to support the U. S. government as it imposes trade sanctions on other countries, such as China, because of human rights violations? What if a significant amount of its international business is in one of those countries?

ETHICAL QUESTION Latin America has been experiencing significant changes in both political orientation and

ETHICAL QUESTION Latin America has been experiencing significant changes in both political orientation and economic development. What strategies should foreign international businesses implement, if any, to influence government policy in these countries? Can businesses realistically expect to influence political changes?